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FCC 96-498
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington D.C. 20554
In the Matter of )
)
BDPCS, Inc. )
)
)
Emergency Petition for Waiver )
of Section 24.711(a)(2) of the )
Commission's Rules )
MEMORANDUM OPINION AND ORDER
Adopted: December 30, 1996 Released: January 6, 1997
By the Commission:
I. INTRODUCTION AND EXECUTIVE SUMMARY
1. The Commission has before it an Application for Review filed on June 28, 1996
by BDPCS, Inc. ("BDPCS"), seeking review of Orders by the Chief of the Wireless
Telecommunications Bureau ("Bureau") that denied BDPCS's Emergency Petition and its
subsequent Petition for Reconsideration seeking a waiver of the general down payment rule
contained in Section 24.711(a)(2) of the Commission's rules. For the reasons discussed
below, we deny BDPCS's Application for Review.
II. BACKGROUND
2. On May 6, 1996, the Commission concluded the Broadband PCS C Block
auction. BDPCS was the successful high bidder on seventeen licenses, with a cumulative
total bid price of $873,783,912.75. On May 8, 1996, the Commission announced by Public
Notice that, pursuant to Section 24.711(a)(2) of the Commission's rules, winning bidders
would be required to submit their full ten percent down payment, or if claiming small
business status, an initial one-half of their total down payment amount (five percent of their
winning bids), by May 15, 1996. Accordingly, BDPCS, a winning bidder claiming small
business status, was required to remit a down payment in the amount of $36,689,196.00,
bringing its total funds on deposit with the Commission to five percent of its total bid
amount, or approximately $43,689,195.00.
3. On May 15, 1996, BDPCS filed an Emergency Petition seeking a limited waiver
as to the time it must submit its down payment as required by Section 24.711(a)(2). BDPCS
claimed that a waiver was necessary because of the sudden withdrawal of all of its intended
sources of financing. In its petition, BDPCS detailed a series of events that allegedly
resulted in its loss of financing. BDPCS claimed that its parent company, QuestCom, Inc.,
had made arrangements with US West Communications ("USWC") to receive a bridge loan
for the required down payment. BDPCS also claimed that QuestCom intended to repay the
bridge loan after completing an initial public offering that was to take place while BDPCS's
C Block license applications were pending. BDPCS contended that QuestCom continued to
search for additional and alternative short-term and permanent financing from several parties.
In particular, QuestCom focused on obtaining a loan from a large "Financial Institution" and
through an initial public offering with Merrill Lynch as the lead underwriter. BDPCS
states that financing of its payment obligations seemed secure until May 2, four days before
the PCS C Block auction closed, when it lost its USWC bridge loan. In addition, BDPCS
notes that four days later, on May 6, Merrill Lynch withdrew as the lead underwriter for
QuestCom's initial public offering. Finally, BDPCS claims that because of the short time
available, it was unable to complete its financing transactions with the "Financial
Institution." BDPCS states that, following the down payment due date, QuestCom selected
Bear Stearns to serve as lead investment banker, and now had the financial capability to
attract capital for the deployment and operation of its PCS systems. On May 20, 1996, the
Bureau denied BDPCS's waiver request, holding that BDPCS had failed to show that special
circumstances warranted a deviation from the general down payment rule, and that such a
deviation would serve the public interest.
4. On May 22, 1996, BDPCS filed a Petition for Reconsideration of the Order,
contending that the Bureau had failed to give BDPCS's waiver request the "hard look"
required by the Commission's rules and applicable case law. Specifically, BDPCS
contended that the Bureau ignored the unique facts and circumstances of its case. According
to BDPCS, these circumstances included the fact that BDPCS acted with reasonable diligence
to meet the down payment deadline, and that BDPCS could not have predicted that it would
lose its expected sources of funding shortly before payment was due. BDPCS also claimed
that the Bureau inappropriately relied upon the Commission's IVDS auction waiver decisions
that are factually distinguishable from its case because BDPCS, unlike the IVDS bidders,
attempted to secure back-up financing and made attempts to raise funds from several
sources. In addition, BDPCS stated that the Bureau did not address or recognize "the fact
that until the week prior to the close of the auction, BDPCS reasonably believed that it would
be capable of meeting the FCC's financial requirements of a PCS high bidder." On May
30, 1996, the Bureau denied the Petition for Reconsideration, reaffirming its decision that the
facts presented by BDPCS failed to warrant a deviation from the general rule, and did not
show that the grant of a waiver would be in the public interest.
5. On May 30, 1996, the Bureau released a Public Notice announcing that the
seventeen licenses on which BDPCS had defaulted would be reauctioned commencing July 3,
1996. On July 17, 1996, the Bureau announced that the reauction of the licenses was
complete.
III. ARGUMENTS RAISED BY BDPCS
6. BDPCS makes the same arguments to the Commission that were previously
rejected by the Bureau. BDPCS repeats its allegation that the Bureau failed to address the
facts presented by BDPCS and that instead the Bureau relied upon factually distinguishable
IVDS cases. BDPCS again alleges that its facts present a different situation from the IVDS
cases because it has shown that (1) it developed alternative financing plans and (2) it
attempted to raise the necessary funds from new sources until the very minute the funds were
due to be paid. Further, BDPCS alleges that the Bureau inappropriately relied upon an
unattested letter from USWC in which USWC disclaimed any obligation to fund BDPCS as
proof that BDPCS's inability to meet its initial down payment was not unexpected. BDPCS
states that the Bureau ignored the fact that until four days prior to the close of the auction,
BDPCS reasonably believed it would be capable of meeting the Commission's financial
requirements, and that its financial problems were caused by circumstances that could not be
predicted. Further, BDPCS again argues that the Bureau violated the "hard look" standard,
claiming that it summarily denied the request without inquiry or analysis.
IV. DISCUSSION
7. After careful review of the facts, we find that the Bureau was correct in
concluding that the circumstances presented here do not support BDPCS's request for a
limited waiver of its down payment obligation. In the Second Report and Order in the
competitive bidding docket, we established the requirement of a full and timely down
payment to ensure that bidders are financially capable of constructing and operating their
systems. The upfront and down payment provisions in Section 24.711 of the Commission's
rules are designed to ensure that the ultimate purpose of the auction -- encouraging and
facilitating the provision of reliable service to the public -- is not undermined by winning
bidders who lack the financial capability to pay for the license, construct systems, and
provide service to the public. We also stated that one of the best indicators of a bidder's
financial ability, at least in the initial stages of the award of licenses, remains the timely
payment of both upfront and down payment obligations. Given the importance of the down
payment requirement, a waiver is appropriate only where "the underlying purpose of the rule
will not be served, or would be frustrated, by its application in a particular case, and that the
grant of the waiver is otherwise in the public interest," or "[t]hat the unique facts and
circumstances of a particular case render the rule inequitable, unduly burdensome or
otherwise contrary to the public interest."
8. We also conclude that while BDPCS appears to have attempted to secure back-
up financing and to obtain new sources of funds up until the time payment was due, that
conduct does not create the special circumstances necessary to warrant the grant of a waiver.
We have stated previously that in order to maintain the integrity of the auction process, and
to ensure the efficient provision of services to the public, auction participants are held to
certain obligations, such as meeting relevant financial deadlines. We also have stated that
inherent in this responsibility placed upon auction participants is the notion that the
Commission cannot take into account the "private business arrangements that an applicant has
made to finance its successful bid." We have held that the failure of a third party to
perform its contractual obligations in dealing with an auction applicant cannot constitute a
special circumstance justifying a waiver of the Commission's down payment rules. We
reaffirm that position here, and state that any departure from this position would require that
the Commission effectively police the private business activities of each bidder. That
function is not, nor should it be, within the mandate of the Commission's powers.
9. Contrary to BDPCS's claim, it was not necessary for the Bureau to detail and
analyze all of the events leading to BDPCS's default in order to meet the "hard look"
standard required under Wait Radio. The "hard look" standard requires the Bureau to give a
request for waiver a "hard look," as opposed to a perfunctory denial, by articulating with
clarity and precision its findings and the reasons for its decision. The Orders indicate that
the Bureau reviewed all of the facts presented and balanced those facts against the purpose of
the down payment rule and its impact upon the efficiency and integrity of the auction
process. For example, in its Order, the Bureau noted that for more than one month, BDPCS
had substantial notice that the C Block auction was coming to a close and that the initial
down payment obligation would soon become due. The Bureau noted, inter alia, that
almost all of the 89 winning bidders were able to secure financing in order to satisfy their
down payment obligation, and that the Bureau was not persuaded that BDPCS's last minute
difficulties in arranging financing justified a waiver of the general rule. The Bureau further
stated that "[t]he Commission . . . cannot be responsible for the private business
arrangements that an applicant has made to finance its successful bid."
10. In this regard, we also reject BDPCS's contention that the Bureau placed too
much emphasis upon the unattested USWC letter. The Bureau stated that the Commission
could not be responsible for the difficulties that BDPCS faced in negotiations with USWC.
Among other things, the Bureau noted that USWC disputed the accuracy of BDPCS's
description of its negotiations and that this letter undermines BDPCS's contention that its
inability to come up with the down payment was caused by circumstances that could not be
predicted. This letter raised an issue as to whether BDPCS should have legitimately relied
upon USWC as a source of financing for its down payment, and thus whether its failure to
obtain the appropriate financing was unexpected. The fact that the letter was unattested
merely goes to the weight to be accorded the letter, and not whether it is properly part of the
record. Although it was part of the information reviewed by the Bureau, the Bureau did not
indicate that this information, in and of itself, was the sole, or even the primary basis for its
decision. Rather, the Bureau relied upon an aggregate of facts in reaching its decision. We
thus reject BDPCS's contention on this point.
11. We also conclude that the Bureau was correct in denying the waiver on the
basis that BDPCS admitted that on May 2, 1996, four days prior to the close of the auction,
it began experiencing financial difficulties. Nonetheless, BDPCS continued to bid in the
auction, and submitted the high bid for several of the licenses on which it ultimately was the
high bidder. Under these circumstances, since BDPCS knew its financing was not secure,
the appropriate course of action would have been to refrain from bidding and withdraw all high bids until its financing was secure. Indeed, the bid withdrawal period provides a bidder
with the option of withdrawing a high bid if it determines that it lacks the funds required to
support the bid, such as was the case with BDPCS.
12. The Commission's default payment provisions also encourage a bidder in
BDPCS's position to withdraw its bid at the time its financing becomes insecure. The rules
governing the Broadband PCS C Block auction provide that the bid withdrawal payment is
calculated based upon the difference between the withdrawn bid and the amount of the
subsequent winning bid, if the subsequent winning bid is less. Under these rules, no bid
withdrawal payment is assessed if the subsequent winning bid exceeds the withdrawn bid.
If a high bidder defaults after the auction has closed, however, it is required to pay not only
the difference between its defaulting bid and the subsequent winning bid for the license, but
an additional three percent of its winning bid or the subsequent winning bid, whichever is
less. The rules thus encourage bidders to withdraw prior to the close of the auction,
thereby resulting in less disruption and damage to the auction process. BDPCS admittedly
knew four days before the auction closed that its financing was not secure, and should have
withdrawn its bids at that time. In particular, having continued to bid rather than availing
itself of the bid withdrawal option, we cannot conclude that the public interest would be
furthered by providing BDPCS relief from the consequences flowing from this decision.
13. Finally, BDPCS's reliance upon alleged factual differences between its situation
and that involving the IVDS bidders that sought waivers is misplaced. BDPCS takes the
position that because it sought alternative financing arrangements, and continued to seek new
financing sources until the time payment was due, it is entitled to a waiver and the Bureau
was wrong in relying on those cases to deny its request. We note, as an initial matter, that
the IVDS cases correctly set forth our view regarding the importance of the down payment
requirement and the standard to justify a waiver of the rule. We also note that BDPCS's
attempt to secure alternative financing is not the decisive factor here. Instead, the fact
remains that BDPCS had time to withdraw its bid when it knew its financing was not secure,
but remained in the auction and continued to bid in the hope of obtaining a waiver. BDPCS
should have withdrawn from the auction and then continued to pursue back-up financing.
We believe BDPCS's conduct was egregious and strongly supports denial of the waiver
request.
V. ORDERING CLAUSES
14. For the reasons discussed above, we hereby deny BDPCS's request for a
waiver of the Commission's down payment rules for its failure to meet the standards required
by Section 24.819(a)(1).
15. Accordingly, IT IS ORDERED that the Application for Review filed by
BDPCS, Inc., on June 28, 1996 IS DENIED.
FEDERAL COMMUNICATIONS COMMISSION
William F. Caton
Acting Secretary